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AGREEMENT DATED AS OF FEBRUARY 11, 2000, BETWEEN LIBERTY MEDIA
CORPORATION ("LIBERTY") AND THE TODD-AO CORPORATION ("TODD").
Recitals
A. On December 10, 1999, Liberty, AT&T Corp. ("Parent"), B-Group Merger Corp.,
a wholly-owned subsidiary of Parent, and Todd entered into an Agreement and
Plan of Merger (the "Todd Merger Agreement"). The Todd Merger Agreement
provides for the merger (the "Todd Merger") of B-Group Merger Corp. with and
into Todd, with Todd surviving. As a result of the Todd Merger and the
Restructuring Transactions contemplated by (and as defined in) the Todd
Merger Agreement (the "Todd Restructuring Transactions"), Parent will
acquire, and subject to certain conditions immediately transfer to Liberty,
capital stock of Todd representing 60% of the outstanding equity and
approximately 93% of the voting power of Todd. As used herein, the term
"Todd Controlling Interest" means the interest in Todd acquired by Liberty
as a result of the Todd Merger and the Todd Restructuring Transactions.
B. On December 30, 1999, Liberty, Parent, C-Group Merger Corp., a wholly-owned
subsidiary of Parent, SounDelux Entertainment Group, Inc., a California
corporation ("SEG California"), and SounDelux Entertainment Group of
Delaware, Inc., a Delaware corporation and wholly-owned subsidiary of SEG
California ("SEG Delaware"), entered into an Agreement and Plan of Merger
(the "SEG Merger Agreement"). The SEG Merger Agreement provides for (i) the
merger (the "SEG Reincorporation Merger") of SEG California with and into
SEG Delaware, and (ii) the merger (the "SEG Merger") of C-Group Merger Corp.
with and into SEG Delaware, with SEG Delaware surviving. As a result of the
SEG Merger and the Restructuring Transactions contemplated by (and as
defined in) the SEG Merger Agreement (the "SEG Restructuring Transactions"),
Parent will acquire, and subject to certain conditions immediately transfer
to Liberty, capital stock of SEG Delaware representing more than 55% of the
outstanding equity and 92% of the voting power of SEG Delaware. As used
herein, the term "SEG Controlling Interest" means the interest in SEG
Delaware acquired by Liberty as a result of the SEG Merger and the SEG
Restructuring Transactions.
C. On December 6, 1999, Liberty, Parent, D-Group Merger Corp., a wholly-owned
subsidiary of Parent, and Four Media Company ("4MC") entered into an
Agreement and Plan of Merger (the "4MC Merger Agreement"). The 4MC Merger
Agreement provides for the merger (the "4MC Merger") of D-Group Merger Corp.
with and into 4MC, with 4MC surviving. As a result of the 4MC Merger and the
Restructuring Transactions contemplated by (and as defined in) the 4MC
Merger Agreement (the "4MC Restructuring Transactions"), Parent will
acquire, and subject to certain conditions immediately transfer to Liberty,
100% of the capital stock of 4MC. As used herein, the term "4MC Interest"
means 100% of the capital stock of 4MC.
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D. The Amended and Restated Certificate of Incorporation of SEG to be adopted
by SEG pursuant to the SEG Merger Agreement (the "New SEG Charter") provides
that, following the Todd Merger and the SEG Merger, the stockholders of SEG
other than Liberty will have the right (the "SEG Holders' Exchange Right"),
on terms and conditions provided for in the New SEG Charter, to exchange
their SEG shares for shares of Todd at a ratio to be fixed at the time of
the SEG Merger in the manner provided for in the New SEG Charter.
E. As soon as practicable following the Todd Merger, the Todd Restructuring
Transactions, the SEG Merger, and the SEG Restructuring Transactions,
Liberty will contribute the Todd Controlling Interest to SEG in exchange for
additional shares of voting stock of SEG (the "Todd Contribution"). As a
result of the Todd Contribution and the SEG Contribution (defined below),
SEG will be holding company controlled by Liberty, whose only assets are its
controlling interest in Todd.
NOW, THEREFORE, in consideration of the mutual covenants contained
herein and other good and valuable consideration, the receipt and sufficiency of
which are hereby acknowledged, and intending to be bound hereby, the parties to
this Agreement HEREBY AGREE AS FOLLOWS:
ARTICLE I. Certain Definitions. As used herein, the following terms have
the corresponding meanings:
1.1 "Closing Adjustment" means the sum of the Adjustment Amount, the
Option Credit, and Net Working Capital, as such terms are defined in the SEG
Merger Agreement, in each case as determined pursuant to Section 2.10 of the SEG
Merger Agreement as of the effective time of the SEG Merger and certified to
Todd by Liberty in writing.
1.2 "Designated Options" means options granted by SEG to purchase up to
240,000 shares of New SEG Class A Common Stock at an exercise price of $7.00 per
share, vesting in three annual installments starting August 30, 2000.
1.3 "4MC Warrant Value" means the fair market value on the date of the
4MC Contribution of a warrant, exercisable at any time from that date through
April 7, 2006, to purchase 354,838 shares of LMGA, at an exercise price of
$46.50 per share. For purposes of this definition, the "fair market value" of
such warrant means the value of such warrant as returned by the Black-Scholes
valuation model or such other quantitative valuation methodology as Liberty and
Todd shall agree is appropriate for valuing the above warrant.
1.4 "LMGA" means the Class A Liberty Media Group Common Stock, par value
$1.00 per share, of Parent.
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1.5 "MTS Earnout" has the meaning provided for in the SEG Merger
Agreement.
1.6 "New SEG Class A Common Stock" means the Class A Common Stock, par
value $.0001 per share, of SEG Delaware, after giving effect to the
reclassification of SEG Delaware's outstanding common stock provided for in the
SEG Merger Agreement.
1.7 "New Todd Class A Common Stock" means the Class A Common Stock, par
value $.01 per share, of Todd, after giving effect to the reclassification of
Todd's outstanding common stock provided for in the Todd Merger Agreement.
1.8 "New Todd Class B Common Stock" means the Class B Common Stock, par
value $.01 per share, of Todd, after giving effect to the reclassification of
Todd's outstanding common stock provided for in the Todd Merger Agreement.
1.9 "Old SEG Common Stock" means the Common Stock, without par value, of
SEG Delaware, as in effect after the Reincorporation Merger and prior to the
reclassification of SEG Delaware's outstanding common stock, in each case as
provided for in the SEG Merger Agreement.
1.10 "Option Offset" means the aggregate number of shares of New Todd
Class A Common Stock issuable upon the exercise of SEG stock options assumed by
Todd pursuant to Section 2.3 hereof in connection with the Todd Contribution,
other than the Designated Options and the MTS Earnout.
1.11 "SEG" means, at and prior to the effective time of the
Reincorporation Merger, SEG California, and following the effective time of the
Reincorporation Merger, SEG Delaware.
1.12 "TODDA Average Closing Price" means the average of the closing
market price per share, as of 4:00 p.m. New York City time, of the Class A
Common Stock, par value $.01 per share, of Todd, as in effect prior to the
reclassification of Todd's outstanding common stock provided for in the Todd
Merger Agreement (NMS:TODDA), on The Nasdaq Stock Exchange over the 20
consecutive trading days for such Class A Common Stock last preceding the date
of the Todd Merger.
1.13 "Todd/SEG Consideration" means a number of shares of New Todd Class
B Common Stock equal to the sum of the following:
(a) 11,363,636, plus
(b) the Closing Adjustment divided by the TODDA Average Closing
Price, plus
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(c) $5,000,000 (the agreed value of the performance recognized by
the MTS Earnout) divided by the TODDA Average Closing Price,
minus
(d) the Option Offset.
1.14 "Todd/4MC Consideration" means a number of shares of New Todd Class
B Common Stock equal to the sum of the following:
(a) 8,417,421 (i.e., 3,176,385 shares of LMGA to be issued in the
4MC Merger, times the agreed ratio of 2.65 shares of New Todd
Class B Common Stock for each share of LMGA), plus
(b) 5,896,296 (i.e., $123,085,181 (the cash component of the
aggregate 4MC Merger consideration), divided by $20.875 (the
closing price of TODDA on December 6, 1999), plus
(c) 1,994,767 (i.e., 1,936,779 (the number of LMGA shares required
to satisfy 4MC options outstanding on December 6, 1999), times
$21.50 (the agreed average in-the-money amount), divided by
$20.875 (the closing price of TODDA on December 6, 1999), plus
(d) the 4MC Warrant Value divided by the TODDA Average Closing
Price.
ARTICLE II. SEG Contribution.
2.1 Contribution. Subject to and as soon as practicable following the
Todd Contribution, Liberty will cause SEG to contribute to Todd (the "SEG
Contribution") 100% of the assets of SEG (other than the Todd Controlling
Interest) as a going concern, in exchange for (i) the Todd/SEG Consideration and
(ii) assumption by Todd of 100% of the liabilities of SEG, including without
limitation all obligations in respect of the options assumed by Todd in
connection with the SEG Contribution pursuant to Section 2.3 hereof, but
excluding any obligation whatsoever arising from the SEG Holders' Exchange
Right.
2.2 Consideration. The Todd/SEG Consideration will be payable as
follows:
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(a) At the closing of the SEG Contribution, Todd shall deliver
to SEG the number of shares of New Todd Class B Common Stock provided
for in subsections 1.13(a) and 1.13(c).
(b) As soon as practicable after the Closing Adjustment has been
finally determined pursuant to Section 2.10 of the SEG Merger Agreement,
Todd shall deliver to SEG that number of shares of New Todd Class B
Common Stock provided for in subsection 1.13(b), minus the number of
shares in subsection 1.13(d); provided, however, that if such result is
a negative number, Liberty shall return that number of shares of New
Todd Class B Common Stock to Todd.
2.3 Options. Without limiting the generality of Section 2.1(ii) of this
Agreement, concurrently with the SEG Contribution, Todd shall assume and be
responsible for all stock options granted by SEG prior to the SEG Merger and in
effect on the date of the SEG Contribution (including, in the case of any stock
options granted with tandem stock appreciation rights, such stock appreciation
rights), to the extent that such stock options (and stock appreciation rights,
if any) relate to shares of New SEG Class A Common Stock, including without
limitation the Designated Options. For the avoidance of doubt, Todd shall not be
responsible for any stock options granted by SEG prior to the SEG Merger to the
extent that, after the SEG Merger, such options relate to shares of LMGA.
ARTICLE III. 4MC Contribution.
3.1 Contribution. As soon as practicable following consummation of the
Todd Merger, the Todd Restructuring Transactions, the 4MC Merger, and the 4MC
Restructuring Transactions, Liberty shall contribute to Todd (or, if the Todd
Contribution shall have already been consummated, Liberty shall contribute to
SEG and shall cause SEG to contribute to Todd) the 4MC Interest, in exchange for
the Todd/4MC Consideration (in either case, the "4MC Contribution").
3.2 Consideration. The Todd/4MC Consideration will be payable in full at
the closing of the 4MC Contribution, as provided in Section 1.14.
3.3 Independent Transaction. Neither the Todd Contribution nor the SEG
Contribution is a condition precedent to the 4MC Contribution. The 4MC
Contribution may take place before, after, or concurrently with the Todd
Contribution and/or the SEG Contribution.
3.4 Warrant Value. In the event of any dispute between Liberty and Todd
as to amount of the 4MC Warrant Value, such dispute shall be referred for
resolution by negotiation between a senior executive designated by Liberty and a
senior executive designated by Todd prior to the Todd Merger. The initial
executives so designated are David Beddow for Liberty and Salah Hassanein for
Todd. A party may change its designated executive by written notice to the other
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party, provided that Todd's designee shall not be changed after the Todd Merger
without the consent of a majority of the directors of Todd who were directors of
Todd prior to the Todd Merger. However, if such executives cannot resolve any
such dispute within 30 days, either party may refer the dispute for resolution
by binding arbitration before a single arbiter, in accordance with the rules of
the American Arbitration Association, or such other rules as the parties shall
mutually agree.
ARTICLE IV. Certain Representations, Warranties and Covenants.
4.1. Representations, Warranties and Covenants of Liberty. Liberty
hereby represents, warrants and covenants to Todd as follows:
(a) Liberty has provided Todd with true, correct and complete
copies of the SEG Merger Agreement and the 4MC Merger Agreement, as executed.
Liberty will promptly notify Todd of any amendment or modification to the SEG
Merger Agreement or the 4MC Merger Agreement and will not consent to any such
amendment or modification adverse to Todd hereunder without the prior written
consent of Todd, which consent will not be unreasonably withheld or delayed.
(b) Between the closing of the SEG Merger and the consummation
of the SEG Contribution, Liberty shall not cause or permit SEG to pay or declare
any dividend or distribution on its capital stock, or otherwise to do anything
that would have been prohibited by Section 7.4 of the SEG Merger Agreement
during the period between the signing of the SEG Merger Agreement and the
closing of the SEG Merger, in any case without the prior written consent of
Todd, which consent will not be unreasonably withheld or delayed. Between the
closing of the 4MC Merger and the consummation of the 4MC Contribution, Liberty
shall not cause or permit 4MC to pay or declare any dividend or distribution on
its capital stock, or otherwise to do anything that would have been prohibited
by Section 7.4 of the 4MC Merger Agreement during the period between the signing
of the 4MC Merger Agreement and the closing of the 4MC Merger, in any case
without the prior written consent of Todd, which consent will not be
unreasonably withheld or delayed.
(c) This Agreement has been duly executed and delivered by
Liberty. Liberty has all requisite corporate power and authority to enter into
this Agreement and Liberty has all requisite corporate power and authority to
perform its obligations hereunder and to consummate the transactions
contemplated hereby. The execution and delivery by Liberty of this Agreement and
the performance by Liberty of its obligations hereunder have been duly and
validly authorized by all necessary corporate action on its part. This Agreement
is a legal, valid and binding obligation of Liberty, enforceable in accordance
with its terms.
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4.2. Representations, Warranties and Covenants of Todd. Todd hereby
represents, warrants and covenants to Liberty as follows:
(a) This Agreement has been duly executed and delivered by Todd.
Subject to stockholder approval, Todd has all requisite corporate power and
authority to enter into this Agreement and Todd has all requisite corporate
power and authority to perform its obligations hereunder and to consummate the
transactions contemplated hereby. The execution and delivery by Todd of this
Agreement and the performance by Todd of its obligations hereunder have been
duly and validly authorized by all necessary corporate action on its part,
except for the approval of this Agreement and of the transactions contemplated
hereby by the holders of shares of Todd common stock representing a majority of
the voting power of Todd's outstanding common stock, which is the only approval
by security holders of Todd required for the due and valid authorization of this
Agreement and the transactions contemplated hereby. This Agreement is a legal,
valid and binding obligation of Todd, enforceable in accordance with its terms.
The shares of New Todd Class B Common Stock to be issued to Liberty or SEG
pursuant to this Agreement, when issued in accordance with this agreement, will
be duly authorized, validly issued, fully paid and non-assessable and no
stockholder or other security holder of Todd will have any preemptive right of
subscription or purchase in respect thereof.
(b) Todd will cause this Agreement and the transactions
contemplated hereby (including, without limitation, the issuance of the shares
of New Todd Class B Common Stock provided for herein and any increase in the
number of authorized shares required for such issuance) to be submitted for
approval to the stockholders of Todd entitled to vote thereon, in accordance
with Todd's certificate of incorporation and bylaws as then in effect and all
applicable laws, at the same meeting of the stockholders of Todd called for
consideration of the Todd Merger and any adjournments of such meeting. The Proxy
Statement (as defined in the Todd Merger Agreement) shall include a
recommendation of the Board of Directors of Todd in favor of the approval of
this Agreement and the transactions contemplated hereby.
4.3. Further Assurances. If at, or at any time after, the closing of the
SEG Contribution or the 4MC Contribution, as applicable, either party considers
or is advised that any deeds, bills of sale, assignments, assurances or any
other actions or things are necessary or desirable to vest, perfect or confirm
of record or otherwise in Todd the right, title and interest of Todd in, to and
under (i) any of the rights, properties, or assets of SEG, or (ii) the 4MC
Interest, as applicable, or otherwise to carry out the intent and purposes of
this Agreement, then, at the request of either party, each party shall execute
and deliver (or cause to be executed and delivered), all such deeds, bills of
sale, assignments and assurances and shall take and do all such other actions
and things as either party may determine to be necessary or desirable to vest,
perfect or confirm any and all right, title and interest in, to and under such
rights, properties or assets of
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SEG or the 4MC Interest, as applicable, or otherwise to carry out the intent and
purposes of this Agreement.
4.4 Todd Charter. Notwithstanding the Todd Merger Agreement, the form of
certificate of incorporation attached thereto as the certificate of
incorporation of the corporation surviving the Todd Merger shall be modified,
prior to the effective time of the Todd Merger, to provide for authorized
capital of not less than 300,000,000 shares of New Todd Class A Common Stock and
100,000,000 shares of New Todd Class B Common Stock. The parties shall use
commercially reasonable efforts to amend the Todd Merger Agreement to provide
for such modification, to the extent such an amendment would be required under
the Todd Merger Agreement, prior to the mailing of the Proxy Statement.
ARTICLE V. Conditions.
The respective obligations hereunder of Liberty and Todd to consummate
the Todd Contribution, the SEG Contribution and the 4MC Contribution are in each
case subject to the satisfaction of each of the following conditions:
5.1. Absence of Injunctions and Proceedings. No permanent or preliminary
Injunction or restraining order or other order by any court or other
governmental entity of competent jurisdiction or other legal restraint or
prohibition shall be in effect, (i) preventing consummation of any of the
transactions contemplated hereby as provided herein, or permitting such
consummation only subject to any condition or restriction that has had or could
have a material adverse effect on the business, operations, results of
operations, financial condition, or prospects of Liberty, Todd, SEG, 4MC or any
direct or indirect subsidiary of any of them or of any other affiliate of
Liberty, (ii) requiring the divestiture, as a result of any of the transactions
contemplated hereby, of any substantial portion of the business or assets of
Liberty, Todd, SEG, 4MC or of any direct or indirect subsidiary of any of them
or of any other affiliate of Liberty, (iii) imposing material limitations on the
ability of Liberty (directly or, in the case of indirectly owned securities,
indirectly) effectively to exercise full rights of ownership of shares of
capital stock or other ownership interests of Todd, SEG, 4MC or any other direct
or indirect subsidiary of Liberty (including the right to vote such shares or
other ownership interests on all matters properly presented to the shareholders
or other equity holders of such entity) or making the holding by Liberty (or a
direct or indirect subsidiary of Liberty) of any such shares or other ownership
interests illegal or subject to any materially burdensome requirement or
condition, or (iv) requiring Liberty, Todd, SEG, 4MC or any direct or indirect
subsidiary of any of them or any other affiliate of Liberty to cease or refrain
from engaging in any line of business, as a result of this Agreement or any
transaction contemplated hereby.
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5.2. No Adverse Enactments. No statute, rule, regulation, law, order,
judgment or decree enacted, promulgated, entered, issued, enforced or deemed
applicable by any foreign or U.S. federal, state or local court or other
governmental authority of competent jurisdiction shall be in effect that (i)
makes this Agreement, the Todd Contribution, the SEG Contribution, the 4MC
Contribution or any other transaction contemplated hereby illegal or imposes or
is reasonably likely to impose material damages or penalties in connection
therewith or otherwise prohibits or unreasonably delays any such transaction,
(ii) requires or is reasonably likely to require, as a result of the
consummation of the Todd Contribution, the SEG Contribution, the 4MC
Contribution or any other transaction contemplated hereby, the divestiture of or
any restrictions or conditions on the conduct of any substantial portion of the
business or assets of Liberty, Todd, SEG, 4MC or any direct or indirect
subsidiary of any of them or of any other affiliate of Liberty, (iii) imposes or
is reasonably likely to result in imposition of material limitations on the
ability of Liberty (directly or, in the case of indirectly owned securities,
indirectly) effectively to exercise full rights of ownership of shares of
capital stock or other ownership interests of Todd, SEG, 4MC or any other direct
or indirect subsidiary of Liberty (including the right to vote such shares or
other ownership interests on all matters properly presented to the shareholders
or other equity holders of such entities), or makes the holding by Liberty (or a
direct or indirect subsidiary of Liberty) of any such shares or other ownership
interests illegal or subject to any materially burdensome requirement or
condition, or (iv) requires or is reasonably likely to require Liberty, Todd,
SEG, 4MC or any direct or indirect subsidiary of any of them or any other
affiliate of Liberty to cease or refrain from engaging in any material business,
as a result of this Agreement or the consummation of any transaction
contemplated hereby.
5.3. Tax Matters. There shall not have been any change in law or
regulation, and no new decision, regulation or interpretation published by the
Internal Revenue Service or any other governmental authority of competent
jurisdiction after the date of this Agreement, that could reasonably be
anticipated to make the Todd Contribution, the SEG Contribution or the 4MC
Contribution taxable to Liberty, Todd, SEG or 4MC (or any member of a
consolidated group of which Liberty, Todd, SEG or 4MC is a member) for U.S.
federal income tax purposes.
ARTICLE VI. Indemnification.
From and after the consummation of the SEG Contribution in accordance
with this Agreement, Liberty shall cause SEG to indemnify and defend Todd and
hold Todd harmless from and against any and all claims, liabilities, damages,
costs, actions and causes of action whatsoever, whether known or unknown,
matured or unmatured, fixed or contingent, arising from or in connection with
the SEG Holders' Exchange Right.
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ARTICLE VII. Termination.
If the Todd Merger Agreement shall terminate for any reason in
accordance with Section 9.1 of the Todd Merger Agreement, then either party
shall have the right to terminate this Agreement, effective on written notice of
such termination to the other party; provided, however, that the party
terminating this Agreement shall not have been in breach of or default under the
Todd Merger Agreement at the time that the Todd Merger Agreement was terminated.
ARTICLE VIII. Miscellaneous.
8.1. Notices. All notices, requests, demands, waivers and other
communications required or permitted to be given under this Agreement shall be
in writing and shall be deemed to have been duly given if delivered personally
or mailed, certified or registered mail with postage prepaid, or sent by
telegram or confirmed telex or telecopier, as follows:
(a) If to Liberty:
Liberty Media Corporation
9197 South Peoria Street
Englewood, CO 80112
Attention: General Counsel
Facsimile: (720) 875-5382
(b) If to the Company:
The Todd A-O Corporation
514 Via De La Valle,
Suite 300A
Solana Beach, CA 92075
Attention: General Counsel
Facsimile: (619) 509-9785
or to such other person or address as any party shall specify by notice in
writing to the other party. All such notices, requests, demands, waivers and
communications shall be deemed to have been received on the date of delivery or
on the third business day after the mailing thereof, except that any notice of a
change of address shall be effective only upon actual receipt thereof.
8.2. Entire Agreement. This Agreement constitutes the entire agreement
between the parties with respect to the subject matter hereof and supersedes all
prior agreements and understandings, oral and written, between the parties with
respect to such subject matter.
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8.3. Assignment; Binding Effect; Benefit. Neither this Agreement nor any
of the rights, benefits or obligations hereunder may be assigned by any party
(whether by operation of law or otherwise) without the prior written consent of
each other party. Subject to the immediately preceding sentence, this Agreement
will be binding upon, inure to the benefit of and be enforceable by the parties
and their respective successors and assigns. Nothing in this Agreement,
expressed or implied, is intended to confer on any person other than the parties
and their respective successors and assigns, any rights, remedies, obligations
or liabilities under or by reason of this Agreement.
8.4. Headings. The table of contents and headings contained in this
Agreement are for reference purposes only and shall not affect the meaning or
interpretation of this Agreement.
8.5. Counterparts. This Agreement may be executed in counterparts, and
on separate counterparts, each of which shall be deemed an original and all of
which together shall constitute one and the same agreement.
8.6. Applicable Law. This Agreement and the legal relations between the
parties hereunder shall be governed by and construed in accordance with the laws
of the State of Delaware applicable to contracts made and to be performed wholly
therein.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement
as of the date first above written.
THE TODD-AO CORPORATION
By: /s/ Salah M. Hassanein
-----------------------------------------------
Name: Salah M. Hassanein
Title: President & CEO
LIBERTY MEDIA CORPORATION
By: /s/ Charles Y. Tanabe
-----------------------------------------------
Name: Charles Y. Tanabe
Title: Senior Vice President
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